Babcock down, Green out

By Danny John

21 August 2008 — 10:44am

Babcock & Brown chief executive Phil Green stood down from his post today as the investment group unveiled a major overhaul of its board and management team after posting a 30% cut in its half year net profits to $175 million.

BNB shares had their worst day ever on the news, falling 36%, or $1.23, to close at a record low of $2.22, bringing the market value of the group to less than $1 billion.

ABN Amro private client adviser Bill Bishop said investors had lost confidence in the company and were fearful it would sell assets into a soft market to reduce debt.

"It's like trying to stop an aircraft carrier in the middle of the ocean, you just can't change these things in the blink of an eye,'' he said.

Babcock's shares have lost more than 90% in value this year as worries about the viability of its debt-funded investment model intensified amid the global credit crunch.

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The announced changes included other restructuring measures, such as the winding down of its corporate and structured finance division.

Mr Green has been replaced by current finance director Michael Larkin who takes over the job of CEO and managing director immediately.

The changes also include the decision by executive chairman Jim Babcock to quit. He is handing over the chairmanship to his current deputy, Elizabeth Nosworthy.

Mr Babcock and Mr Green will both become non-executive directors as B&B undertakes a huge shake-up of its businesses in the wake of a drying up of investor confidence that has followed a collapse in its stock market capitalisation.

Mr Green, who has been with B&B for 24 years, four of which as CEO following the group's listing on the ASX in 2004, said his time with the group had been "enormously rewarding''.

B&B is also moving to having primarily non-executives on its board with Mr Larkin being the only executive on its re-shaped team of directors.

Mr Larkin's promotion is also a reflection of the group's decision to move away from deal-making and the constant churning of the assets it buys to focus on the more traditional business of fund and asset management.

As a result, it is winding back its corporate finance operation, which will see the head of that division, Robert Topfer, step down to concentrate on his roles with some of B&B's managed funds.

The overhaul will also see Peter Hofbauer, the current head of its global infrastructure business, move into the job of chief investment officer.

B&B will now concentrate on getting the most out of its assets in three businesses; infrastructure, real estate and operating leases.

At B&B's Sydney headquarters, where Mr Green was notably absent from a press conference, Mr Larkin said the group would lessen its focus on deal origination and asset churning by shutting down its complex financial engineering unit.

"A compensation structure that awards origination without regard to investment outcomes is not appropriate,'' he said.

Focusing instead on traditional funds management, he said B&B would also significantly reduce its corporate gearing, now at $3.6 billion, to between 20 and 30% of net equity, down from 50 to 55%.

Costs would be reduced by 20% by sacking 400 staff around the globe by December 2009.

B&B's satellite funds hold a staggering $50 billion in debt and Mr Larkin said they would need to work out a "more appropriate level of leverage'' themselves.

"We recognise that the level of balance sheet leverage that we currently have is not appropriate,'' he said. "We recognise that we have too many sub-scale, non-strategic assets on our balance sheet.''

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Gearing would be reduced by a continued program of asset sales, similar to a sale announced today by specialist fund B&B Wind Partners Group (BBW) of some Spanish wind farms.

Those assets, representing 17% of BBW's total portfolio, were sold at a $266 million profit.

The moves come after a shocking six months for the group, whose market capitalisation has lost billions of dollars in value as a consequence of the global credit crisis undermining its fee-driven business model.

Today, it announced a group interim profit a third lower than last time's $250 million, which was struck after taking impairment charges of $386 million into its accounts.

The figure also included trading losses of $55 million across its current four operating divisions.

B&B also confirmed that the outcome for the full year will almost certainly fall short of the 2007 net earnings result of $643 million after a profit warning just over a week ago.

It also stunned the market by abandoning its dividend payout, saying it needed to use the cash to pay down its debt mountain.

Today's statement indicated that there will no final dividend either, with the group stating that the payments were expected to commence again in 2009.

"As a matter of prudence, no dividend will be paid until sufficient progress has been made on corporate debt reduction,'' the statement added. Sydney Morning Herald, with wires